“The Governor View”: Funding Settlements

Higher education funding settlements for 2026/27 present a mixed picture across the nations of the UK and their impact will be more sharply felt by some institutions than others.

In England, a cut of more than £50 million leaves the Office for Students (OfS) with a Strategic Priorities Grant (SPG) allocation of £1.25 billion to distribute. Capital funding has fallen too, from £92 million last year to £88 million.

The July settlement letter, from then education secretary Bridget Phillipson, confirms that high-cost subject funding will continue to prioritise STEM courses, including laboratory-based subjects, technology, and healthcare provision.

These courses “align closely” with the UK government’s 2024 Industrial Strategy and are in sectors “offering the greatest potential for growth”.

However, maintaining this focus means “trade-offs elsewhere”, the letter says. SPG funding will be cut on courses in the “C price group”, which includes nursing, computing, history, creative and performing arts, archaeology and geography.

Meanwhile, to “preserve” funding for disabled and mental health premiums, funding allocations to full-time and part-time student premiums have been reduced.

The OfS warns that Institutions will now “need to plan for how best to adjust their budgets to ensure they continue to deliver high-quality courses and resources to students”.

Arts institutions have been impacted by the settlement. Creative and performing arts subjects, which received £16.8 million in support in 2024-25 and £12.9 million in 2025-26, will next year receive nothing. A number of these institutions have lost between 40 to 50 per cent of their SPG funding. Elsewhere, a few providers enjoyed an uptick in funding.

A governor at an institution in the south of England said the settlement would mean even more intense scrutiny of boards of the courses their institutions deliver.

“It is and has to be a constant process – governors sitting down looking at their portfolios,” he said. “Governors are obviously not managers, but they are taking much more interest in the day-to-day decisions and their financial consequences than they did in the days when you could be certain that your institution just rolls over to the next year.”

The pressure on small, specialist institutions in particular, could lead to more discussions about mergers, he predicted.

“We have the recent announcement of Cranfield University merging with King’s College London and I think it’s a fairly safe bet to expect more of that in 2026/27,” he said.

A recent former governor at a Russell Group institution in the north of England said the settlement should be seen within a wider context of the lifting of the tuition fee cap, which the government cites in the settlement letter, and also the increase in National Insurance contributions and, from August 2028, the international student levy.

“The levy that is coming down the tracks will have a big impact on some institutions and less on others,” he said. “One bit of good news is that the employers’ contribution to the Teachers’ Pension Scheme is going to decrease from April 2027 so that will help some institutions.”

In Scotland, the Main Teaching Grant (MTG) for 2026-27 has been set at £716.3 million, an increase of £22.6 million on the previous year.It ensures that every university sees an increase in their MTG of at least 3.2 per cent before Scottish Funding Council-controlled funded places are adjusted for the final funding allocations.

There have also been small increases in the small specialist institutions grant, widening access and retention funding and theDisabled Students Premium for 2026-27.

According to the chair of one Scottish University, the increase in funding is “relatively minor which means the underlying issues remain the same”.

“A 3 per cent increase in the teaching grant is broadly in line with inflation and slightly above the increase from one year to the next in English tuition fee rates,” he said. “The feeling is, yes, it has been increased but not as much as inflation is capable of running at so ultimately, the financial problems of the sector remain.”

The financial challenges facing Scottish universities have been highlighted in a new report published by Universities Scotland from the Future Framework Funding Gap Analysis Project Group, a project backed by Scotland’s devolved administration, universities and research funders, which points to a cumulative shortfall for the nation’s universities of £200 million in 2023-24, up from £110 million in 2022-23.

This governor argues that an adjustment to student number calculations is necessary in future years.

“If you, as a government, have a more or less fixed budget and you want to increase funding further, you need to reduce the number of student places that are funded in the system,” he said. “That throws up a range of difficult questions for the government and the regulator that no one really wanted to tackle in the run up to the May elections. We are still in a position where there are too many places for Scottish students in the Scottish system.”

In this system, the Scottish Funding Council recovers, or “claws back”, funds from institutions that have failed to fill their number of places and redirects those funds into “transitional” initiatives, including pilots to improve student articulation from further education and greater cooperation between institutions in common service areas.

“That keeps money in the sector and avoids the politics of changing the student numbers,” said the chair.

But demographic changes in the number of 18 years olds, which will see numbers begin to fall from 2030, particularly in Scotland, may force the issue.

A Scottish cross-party exploration of higher education funding, called the Future Framework, is currently underway and is due to report at the end of the year.

It includes a caveat, insisted upon by the administration which launched the review in January this year, that higher education would remain free at the point of delivery.

“There is that shibboleth but there is still some hope in the sector that a new administration might consider some form of co-payment,” said the chair. “All sorts of mechanisms have been mooted and we wait to see what will emerge.”

For governors in Scotland this year’s settlement means more “tightening of your belt”.

“We’ve seen cuts and hiring freezes in the sector” said a board member. “That has resulted in some recent announcements of industrial action and marking boycotts, which doesn’t look good reputationally for Scottish institutions.”

In a difficult financial landscape, the delivery of courses is subject to intense economic scrutiny.

“In the old days there was less course by course pressure. Institutions would take a wider view of the level of cross subsidy they were prepared to offer in order to run a range of courses. In the pursuit of universality, there might have been activity which might not be directly profitable but added to perspectives and reputation. Now, courses are being withdrawn,“ said one governor.

He points to recent examples of course cuts to modern foreign languages.

“A lot of people may say it is important strategically that we invest in x, y and z subject, but there is no real mechanism, or appetite, to plan for this as opposed to allowing the market to yield results of whatever type,” he said.

Meanwhile in Wales, Medr’s total budget across tertiary education in 2026‑27 has been set at just over £1 billion, an increase of £29.6 million on the previous year. It incorporates additional funding in areas such as apprenticeships, further education, learner wellbeing and teacher training.

Boards are looking at how to capitalise on the increased focus on apprenticeships, according to one governor.

“Wales was behind on apprenticeships because the scope of what could be classified as an apprenticeship in Wales was so much narrower than it was across the border, so we are interested in any opportunities there,” he said. “We have an agreement with our local college and work very closely with them on FE level apprenticeships to try to drive through a pipeline into HE, but it is not immediately obvious how HE can capitalise on any new funding as yet.”

Of even greater interest though is the comprehensive review of HE in Wales, announced in early August by the new Welsh government.

“Nothing is off the table apparently and without a doubt, that is making the sector nervous – some more than others,” said a governor.

Financial difficulties loom large at many institutions. Despite this, some “remain bloated in terms of campus and buildings,” according to one board member.

“There are some real challenges,” he said. “For us, we’ve come a long way down that line of rationalisation, both in terms of buildings and getting ourselves in a state where we can withstand some of these pressures. But we are by no means immune to them.

“It is a complex environment; the financial pressures in tandem with learner expectations going up a notch or two as well as workforce requirements. It is no different here in that respect than the rest of the UK.”

The role of governors, according to this board member, is to “try to keep as close to what is going on as possible”.

“The underlying messages in the funding announcement are that employability is super important, as are collaborations, partnerships and working in the geographical area you are in to identify future needs. That is certainly something the board and executive have been throwing a lot of time at.”

From partnerships with schools, FE colleges, employers and local authorities, his institution is trying to come up with a broader local and regional tertiary approach.

However, echoing his colleagues in other parts of the UK, he warns that there is little in the settlement to ameliorate higher education’s immediate financial woes. “It is more of the same,” he said. “At the same time, we are collaborating to try to drive the revenue side of things. There are no easy solutions, and initiatives, such as sharing back office functions, are super expensive. There has to be an element of Welsh government funding to help drive that level of change.”